Friday, March 14, 2008

Ghosts And Moonlighters

Have you filled in a self-assessment?

We've blogged before about the vast amount of money we lose from tax avoidance of one kind or another (the so-called tax gap).

For several years HMRC has published estimates of losses on indirect taxes (VAT etc), but has always been very reluctant to put a figure on losses on direct taxation. That's now been put right with a detailed analysis of those who avoid paying their share, including Ghosts, who are unknown to the tax authorities, and Moonlighters who are doing second cash-in-the hand jobs.

Looking at 2003-04, HMRC estimates the total loss onIncome Tax, CGT, National Insurance, Corporation Tax, IHT, and Stamp Duty was in the range of £11bn to £41bn, with a point estimate of £22bn:

Since receipts in that year were £246bn, that implies losses in the range 5-15% (point estimate 8%).

So adding it together, HMRC's analysis gives us an estimated loss range for the current year of £30 - 65bn.

How does that compare to BOM's previous estimate? Without access to HMRC's legions of stats gremlins, we patched together our figures from a range of sources, including the estimate that some 10% of our economy is underground. We concluded "albeit with a broad brush, our guess is that Britain's losses to tax fraud and evasion are currently running in the range £60-80bn pa."

So we're at the top end of the HMRC range, and some way above its "point estimate".

But then again, HMRC's analysis does not cover everything, and their direct tax analysis is their first published shot. By way of camparison, the Swedish tax authorities - who've been publishing figures on this for some time - estimate a tax gap for their direct and indirect taxes of 10% in 2007. And the US Internal Revenue Service recently estimated that their tax gap for direct taxes was 14% in 2001.

So with total UK taxes running at around £500bn pa, and with our Black Economy thought to be about 10% of GDP, we reckon an estimate at the top end of HMRC's range is still the best guess. Let's call it £50bn plus.

Or to put it another way, if HMRC managed to nail those freeloaders, the rest of us could have our taxes cut by 10%.

BOM the book now available

Drawing on six years of blogging government waste, this book shows how we spend far more than we need on our public services. It sets out the facts and explores the underlying issues. Just why does government spend so much and deliver such second rate service? Why do we put up with it? And what are the alternatives?

ABOUT BOM

Despite all the talk of cuts, government still consumes nearly half our national income. Yet many tens of billions of its spending is wasted, with taxpayers made to pick up the tab for a depressing array of overpriced sub-standard services. This is money we can no longer afford, and our National Debt is already at danger level.

If we're to avoid further decades of stagnation and austerity we urgently need to find another way. Exposing and understanding the wastefulness of government is a necessary step in the right direction.